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proportion of financing. Question 1 Problem Solving - WACC Calculation (60 points) Part I: Assume newly formed Corporation MEGIS needs to raise $1,5 million in capital so it can buy office buildings and the equipment needed to conduct its business. The company issues and sells 7,000 shares of stock at $100 each to raise the first $700,000. Because shareholders expect a return of 7% on their investment, the cost of equity is 7%. Part I Requirement: Calculate the equity Copyrigh sho Show formula and calculation. (20 points) Part II: Corporation MEGUS then sells 800 bonds for $1,000 each to raise the other $800,000 in capital. The people who bought those bonds expect a 8% return, so MEGIS's cost of debt is 8%. Part II Requirement: Calculate the debt proportion (before tax) of financing. Show formula and calculation. (20 points) Part III: Corporation MEGIS total market value is now ($700,000 equity + $800,000 debt) = $1.5 million and its corporate tax rate is 30%. Part III Requirement: Calculate WACC. Show formula and calculation. (20 points) Question 2: Short Answer Questions (40 points) 1. What are the two ways that companies can raise common equity? List them and explain each. (20 points) 2. Based on the relationship between the Return on investment and Cost of capital, when should companies take or considers the project? (10 points) 3. List two types risks associated with projects. ( 10 points) Question 3: Bonus Question (10 points) CityCrop has a beta of 1.40. The risk-free rate of return is 1.70 percent and the cost of equity (CAPM) is 5.20 percent. What is the risk premium on this stock? proportion of financing. Question 1 Problem Solving - WACC Calculation (60 points) Part I: Assume newly formed Corporation MEGIS needs to raise $1,5 million in capital so it can buy office buildings and the equipment needed to conduct its business. The company issues and sells 7,000 shares of stock at $100 each to raise the first $700,000. Because shareholders expect a return of 7% on their investment, the cost of equity is 7%. Part I Requirement: Calculate the equity Copyrigh sho Show formula and calculation. (20 points) Part II: Corporation MEGUS then sells 800 bonds for $1,000 each to raise the other $800,000 in capital. The people who bought those bonds expect a 8% return, so MEGIS's cost of debt is 8%. Part II Requirement: Calculate the debt proportion (before tax) of financing. Show formula and calculation. (20 points) Part III: Corporation MEGIS total market value is now ($700,000 equity + $800,000 debt) = $1.5 million and its corporate tax rate is 30%. Part III Requirement: Calculate WACC. Show formula and calculation. (20 points) Question 2: Short Answer Questions (40 points) 1. What are the two ways that companies can raise common equity? List them and explain each. (20 points) 2. Based on the relationship between the Return on investment and Cost of capital, when should companies take or considers the project? (10 points) 3. List two types risks associated with projects. ( 10 points) Question 3: Bonus Question (10 points) CityCrop has a beta of 1.40. The risk-free rate of return is 1.70 percent and the cost of equity (CAPM) is 5.20 percent. What is the risk premium on this stock